Vodafone Idea Ltd - Cashflow not catching up with liabilities - ICICI Securities

Vodafone Idea's (VIL) Q1FY21 adjusted cash EBITDA came broadly in-line with our estimates at Rs15bn. However, VIL's revenue dip of 9.3% has significantly underperformed peers Bharti / RJio. The positives were steady EBITDA despite decline in revenue and accommodating higher data usage despite limited capex. However, rising AGR liability is negative, which now stands at Rs654bn (vs Rs580bn in our base case). In comparison, 4G subs and revenue market share continue to slide; however, Rs40bn planned addition cost optimisation measure should make up for some revenue market share loss. Key data points of VIL to look forward to: 1) staggered AGR payment of at least 15 years; and 2) significant tariff hike to drive higher cashflow for meeting rising liabilities. We have cut target price to Rs6 (from Rs8) on higher AGR liability. Maintain SELL.

- Revenues dip 9.3% QoQ to Rs107bn, worst impacted among telcos. Bharti mobile revenues dip 0.6% QoQ, while Reliance's was up 11.6%. The higher impact may be due to higher portion of 2G subs, and lower gross addition. ARPU fell 5.8% QoQ to Rs114 on non-availability of recharge and subs dip 3.8% QoQ to 280mn (net loss: 11.2mn). Post- paid subs dipped 1.4mn to 21.5mn. 4G subs dip as well by 1.0mn to 105mn. Mobile broadband subs net loss was 1mn to 116mn.

- Cash EBITDA (adjusted for Ind-AS 116) at Rs18bn. EBITDA at Rs41bn came 13% higher than expected due to Rs3bn one-off benefit in network cost and licence fee. Adjusted for Ind-AS 116 and one-off, EBITDA was Rs15.4bn (broadly in-line) vs Rs17bn in Q4FY20. Network cost was down 6.8% QoQ to Rs24bn, licence fees and SUC was down 25% QoQ; and SG&A shrunk 29% QoQ to Rs11bn. Depreciation dipped 1% QoQ to Rs58.9bn and finance cost was down 8.9% QoQ to Rs38bn on lower forex loss. Net loss stood at Rs255bn on exceptional loss of Rs199bn due to: 1) provisioning of Rs194bn for pending AGR dues and 2) Rs4bn on integration cost.

- Net debt rose Rs24bn to Rs1,149bn; capex saw significant fall. VIL's capex stood at Rs6bn (5.6% of revenues), which was significantly low due to lockdown and likely tight cashflow situation. But, lower capex is unsustainable else it will hurt subs users. Net debt rose Rs24bn to Rs1,149bn rise in debt from accrued interest from deferred spectrum liability. Cash balance was Rs41bn in Q1FY21 (Rs31bn in Q4FY20) on cash received from Vodafone Plc (Rs15bn), dividend from Indus Towers (Rs1bn) and nil cash burn.

- AGR liability provisioned is Rs654bn. AGR liability as per DoT filing was Rs580bn; however, on prudent accounting, VIL has accounted for additional AGR liability from the date of filing by DoT to implementation which has increased AGR liability by Rs60bn. It has paid Rs79bn and the rest is pending. The key to watch is Supreme Court's order on rescue plan on 10-Aug-20. Our base case is 15 years payment period with 8% interest rate. We reckon VIL will also need significant rise in tariffs to meet rising liability, and tariff hike asking rates are increasing with every passing quarter. We appreciate the company's efforts in driving further cost optimisation of Rs40bn in the next 18 months.

Shares of Vodafone Idea Ltd was last trading in BSE at Rs.8.83 as compared to the previous close of Rs. 8.25. The total number of shares traded during the day was 112188422 in over 146215 trades.

The stock hit an intraday high of Rs. 8.93 and intraday low of 7.64. The net turnover during the day was Rs. 954545944.

Source : Equity Bulls

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